Take Singapore developer presales with ‘pinch of salt,’ Nomura says

Singapore developers’ presales data should be taken “with a pinch of salt,” Nomura said, pointing to data on the numbers of units returned by buyers.

In a note on Wednesday, Nomura pointed to data from Squarefoot Research which showed 97 units of private condos and apartments, including executive condos, presold in December were later returned by buyers. That was 18.9 percent of December’s total presales, up from 12 percent in November and 13.3 percent a year earlier, Nomura noted.

“While this is still a far cry from the peak of 40 percent reached in February 2008, the rise in the proportion of developers’ presales returned by buyers (and the resulting forfeiture of 1.25 percent of the purchase price) is puzzling given the bullish sentiment in the housing market (unlike the case in early 2008),” the note said.

‘Puzzling’ returns

Nomura said it suspected the reason for the rising returns was the failure to secure adequate bank financing to complete the purchases, pointing toward the 2013 introduction of the Total Debt Servicing Ratio. That limits the size of the mortgage relative to the buyer’s income.

The bank saw two key takeaways from the data: First, that headline presales data, which are based on issuing options to purchase, should be taken with a “pinch of salt,” because on average nearly 15 percent of those presales could eventually be returned.

Secondly, regulators could take the “straightforward” move to boost homebuyers’ financial prudence by requiring they obtain an in-principle approval from a bank before an option to purchase can be issued.

Nomura said it remained cautious on the Singapore developers.

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